Oct. 18 - Morgan Stanley beats the Street in more ways than one as wealth managment and equity trading pay off. Conway G. Gittens reports.
Wealth Management is bringing in the dough for Morgan Stanley. That unit made up roughly half of the bank's entire pre-tax operating profit in the third quarter, helping it look comparatively better than many of its peers. Polishing up results even more - a strong showing from equity trading, which was robust enough to offset the slump in fixed income trading roiling Wall Street last quarter. For Brad Hintz of Sanford C. Bernstein, Morgan Stanley's results are an indication of a shift in investor sentiment. SOUNDBITE: BRAD HINTZ, EQUITY ANALYST, SANFORD C. BERNSTEIN (ENGLISH) SAYING: "We are in an early stage of a recovery. We are five years in from a crisis.( The retail) We are getting back to normality. So you are starting to see retail investors take more risk. And of course that's very good. If you happen to own one of the oligopolgy of wealth management firms - Merrill Lynch at Bank of America or the Dean Witter Smith Barney now Morgan Stanley Wealth Management -this is going to be good. You are in an early stage in terms of that." Bets in favor of Morgan Stanley have paid off better than those of the wider industry. Shares are up 55 percent year-to-date, compared with a 28 percent gain for the KBW banking index. With Morgan Stanley being one of the last big money center banks to report, bank earnings growth is actually down in the third quarter- blame JP Morgan Chase. That's opposite the profit growth in the rest of S&P 500, according to Thomson Reuters I/B/E/S. Hintz says Wall Street earnings are lagging because of R versus R - that's risk versus regulators. SOUNDBITE: BRAD HINTZ, EQUITY ANALYST, SANFORD C. BERNSTEIN (ENGLISH) SAYING: "Remember the regulators are being much more intrusive than in the past. The regulators are holding the reins very tight. You're just not seeing the kind of risk taking that you've seen in the past. And so the Street just hasn't had booming fixed income performance despite relatively good fixed income environments for a couple of years." And that actually works in Morgan Stanley's favor, due to years of lagging in the fixed income business the company is focusing more than its peers on the wealthy among us - a focus that's paying off.